Exhibit Number | Exhibit Description | |
2.1 | Amended and Restated Asset and Stock Repurchase Agreement dated as of January 30, 2015, by and between Regal Beloit Corporation and Emerson Electric Co.* ** | |
10.1 | Credit Agreement, dated as of January 30, 2015, by and among Regal Beloit Corporation, certain of its subsidiaries, JPMorgan Chase Bank, N.A., as Administrative Agent, and the lenders named therein.* | |
23.1 | Consent of KPMG LLP, Independent Registered Public Accounting Firm. | |
99.1 | News Release of Regal Beloit Corporation, dated February 2, 2015.* | |
99.2 | Audited financial statements of PTS as of September 30, 2014 and for the years ended September 30, 2014 and 2013. | |
99.3 | Unaudited Pro Forma Combined Condensed Financial Statements. |
2013 | 2014 | |||||||
Net sales | $ | 616,928 | $ | 607,337 | ||||
Costs and expenses: | ||||||||
Cost of sales | 403,012 | 389,845 | ||||||
Selling, general and administrative expenses | 116,544 | 117,623 | ||||||
Other deductions (income), net | 21,246 | 14,326 | ||||||
Interest income, net | (3,899 | ) | (4,111 | ) | ||||
Earnings before income taxes | 80,025 | 89,654 | ||||||
Income taxes | 27,562 | 28,621 | ||||||
Net earnings | $ | 52,463 | $ | 61,033 | ||||
Comprehensive Income | ||||||||
Net earnings | $ | 52,463 | $ | 61,033 | ||||
Foreign currency translation | 12,299 | (21,612 | ) | |||||
Pension, net of tax, 2013 $(2,920); 2014, $573 | 5,422 | (1,064 | ) | |||||
Cash flow hedges, net of tax: 2013, $162; 2014, $(67) | (276 | ) | 114 | |||||
Total comprehensive income | $ | 69,908 | $ | 38,471 | ||||
See accompanying Notes to Consolidated and Combined Financial Statements. |
2013 | 2014 | ||||||
ASSETS | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | 90,624 | $ | 100,741 | |||
Trade receivables, less allowances of $296 in 2013 and $434 in 2014 | 93,954 | 88,646 | |||||
Inventories: | |||||||
Finished products | 37,913 | 37,187 | |||||
Raw material and work in process | 45,407 | 47,804 | |||||
Total inventories, less obsolescence reserves of $5,743 in 2013 and $6,269 in 2014 | 83,320 | 84,991 | |||||
Deferred income taxes | 8,050 | 9,033 | |||||
Other current assets | 2,722 | 3,356 | |||||
Total current assets | 278,670 | 286,767 | |||||
Property, plant and equipment | |||||||
Land | 9,647 | 10,258 | |||||
Buildings | 111,416 | 113,722 | |||||
Machinery and equipment | 331,379 | 269,099 | |||||
Construction in progress | 3,538 | 3,026 | |||||
455,980 | 396,105 | ||||||
Less: Accumulated depreciation | 331,874 | 275,435 | |||||
Property, plant and equipment, net | 124,106 | 120,670 | |||||
Other assets | |||||||
Goodwill | 232,015 | 222,832 | |||||
Other intangible assets | 41,725 | 35,189 | |||||
Deferred income taxes | 6,506 | 6,202 | |||||
Other | 4,040 | 2,194 | |||||
Total other assets | 284,286 | 266,417 | |||||
Total assets | $ | 687,062 | $ | 673,854 | |||
LIABILITIES AND EQUITY | |||||||
Current liabilities | |||||||
Cash pool borrowings | $ | 21,462 | $ | 14,378 | |||
Trade accounts payable | 49,525 | 57,504 | |||||
Accrued expenses | 47,042 | 46,491 | |||||
Income taxes | 6,766 | 9,924 | |||||
Total current liabilities | 124,795 | 128,297 | |||||
Other long-term liabilities | 28,145 | 27,573 | |||||
Deferred income taxes | 13,336 | 11,202 | |||||
Invested equity | |||||||
Intercompany receivable due from Emerson | (200,345 | ) | (229,358 | ) | |||
Net investment | 704,400 | 741,971 | |||||
Accumulated other comprehensive income | 16,731 | (5,831 | ) | ||||
Total invested equity | 520,786 | 506,782 | |||||
Total liabilities and equity | $ | 687,062 | $ | 673,854 | |||
See accompanying Notes to Consolidated and Combined Financial Statements. |
2013 | 2014 | |||||||
Intercompany receivable due from Emerson | ||||||||
Beginning balance | $ | (195,214 | ) | $ | (200,345 | ) | ||
Net transfer from (to) Emerson | (5,131 | ) | (29,013 | ) | ||||
Ending balance | (200,345 | ) | (229,358 | ) | ||||
Net investment | ||||||||
Beginning balance | 713,867 | 704,400 | ||||||
Net earnings | 52,463 | 61,033 | ||||||
Net transfer to Emerson | (61,930 | ) | (23,462 | ) | ||||
Ending balance | 704,400 | 741,971 | ||||||
Accumulated other comprehensive income | ||||||||
Beginning balance | (714 | ) | 16,731 | |||||
Foreign currency translation | 12,299 | (21,612 | ) | |||||
Pension, net of tax | 5,422 | (1,064 | ) | |||||
Cash flow hedges, net of tax | (276 | ) | 114 | |||||
Ending balance | 16,731 | (5,831 | ) | |||||
Total invested equity | $ | 520,786 | $ | 506,782 | ||||
See accompanying Notes to Consolidated and Combined Financial Statements. |
2013 | 2014 | ||||||
Operating activities | |||||||
Net earnings | $ | 52,463 | $ | 61,033 | |||
Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||
Depreciation and amortization | 27,559 | 21,631 | |||||
Changes in operating working capital | 12,176 | 17,398 | |||||
Other | (6,624 | ) | (7,751 | ) | |||
Net cash provided by operating activities | 85,574 | $ | 92,311 | ||||
Investing activities | |||||||
Capital expenditures | (10,886 | ) | (15,576 | ) | |||
Proceeds from disposition of property, plant and equipment | 3,785 | 573 | |||||
Other | 1,957 | (489 | ) | ||||
Net cash used in financing activities | (5,144 | ) | $ | (15,492 | ) | ||
Financing activities | |||||||
Net increase (decrease in cash pool borrowings | 21,364 | (6,744 | ) | ||||
Net transfer to Emerson | (67,061 | ) | (52,475 | ) | |||
Net cash used in financing activities | (45,697 | ) | (59,219 | ) | |||
Effect of exchange rate changes on cash and equivalents | 765 | (7,483 | ) | ||||
Increase (decrease in cash and equivalents | 35,498 | 10,117 | |||||
Beginning cash and equivalents | 55,126 | 90,624 | |||||
Ending cash and equivalents | $ | 90,624 | $ | 100,741 | |||
Changes in operating working capital | |||||||
Receivables | (4,071 | ) | 1,748 | ||||
Inventories | 12,237 | (3,382 | ) | ||||
Other current assets | (984 | ) | (1,382 | ) | |||
Accounts payable | (473 | ) | 10,611 | ||||
Accrued expenses | 2,396 | 3,071 | |||||
Income taxes | 3,071 | 6,732 | |||||
Total changes in operating working capital | $ | 12,176 | $ | 17,398 | |||
See accompanying Notes to Consolidated and Combined Financial Statements |
2013 | 2014 | |||||||
Rationalization of operations | $ | 5,159 | $ | 1,260 | ||||
Amortization of intangibles (intellectual property and customer relationships) | 5,534 | 5,590 | ||||||
Environmental costs | 6,750 | 8,500 | ||||||
Other | 3,803 | (1,024 | ) | |||||
Total | $ | 21,246 | $ | 14,326 |
2013 | Expense | Paid/Utilized | 2014 | |||||||||||||
Severance and benefits | $ | 1,969 | $ | 34 | $ | 1,738 | $ | 265 | ||||||||
Lease and other contract terminations | — | — | — | — | ||||||||||||
Vacant facility and other shutdown costs | — | 1,040 | 1,040 | — | ||||||||||||
Start-up and moving costs | — | 186 | 186 | — | ||||||||||||
Total | $ | 1,969 | $ | 1,260 | $ | 2,964 | $ | 265 |
2012 | Expense | Paid/Utilized | 2013 | |||||||||||||
Severance and benefits | $ | 1,444 | $ | 2,823 | $ | 2,298 | $ | 1,969 | ||||||||
Lease and other contract terminations | — | 63 | 63 | — | ||||||||||||
Vacant facility and other shutdown costs | — | 935 | 935 | — | ||||||||||||
Start-up and moving costs | — | 1,338 | 1,338 | — | ||||||||||||
Total | $ | 1,444 | $ | 5,159 | $ | 4,634 | $ | 1,969 |
Goodwill | ||||
Balance September 30, 2013 | $ | 232,015 | ||
Foreign currency translation | (9,183 | ) | ||
Balance September 30, 2014 | $ | 222,832 |
Customer Relationships | Intellectual Property | Capitalized Software | Total | |||||||||||||||||||||||||||||
2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | |||||||||||||||||||||||||
Gross carrying amount | $ | 56,093 | $ | 52,385 | $ | 17,512 | $ | 16,593 | $ | 28,057 | $ | 29,557 | $ | 101,662 | $ | 98,535 | ||||||||||||||||
Less: Accumulated amortization | 24,899 | 27,631 | 10,083 | 10,491 | 24,955 | 25,224 | 59,937 | 63,346 | ||||||||||||||||||||||||
Net carrying amount | $ | 31,194 | $ | 24,754 | $ | 7,429 | $ | 6,102 | $ | 3,102 | $ | 4,333 | $ | 41,725 | $ | 35,189 |
Gain (Loss) to Earnings | Gain (Loss) to OCI | |||||||||||||||||
Location | 2013 | 2014 | 2013 | 2014 | ||||||||||||||
Foreign currency | Cost of Sales | $ | 579 | $ | 357 | $ | 141 | $ | 538 |
2013 | 2014 | |||||||||||||||||
Assets | Liabilities | Assets | Liabilities | |||||||||||||||
Foreign Currency | $ | — | $ | — | $ | 181 | $ | — |
U.S. Plans | Non-U.S. Plans | |||||||||||||||
2013 | 2014 | 2013 | 2014 | |||||||||||||
Company sponsored defined benefit plans: | ||||||||||||||||
Service cost (benefits earned during the period) | $ | 598 | $ | 292 | $ | 189 | $ | 204 | ||||||||
Interest cost | 1,707 | 1,787 | 169 | 222 | ||||||||||||
Expected return on plan assets | (2,827 | ) | (2,740 | ) | (154 | ) | (134 | ) | ||||||||
Net amortization and other | 2,664 | 1,535 | 173 | (60 | ) | |||||||||||
Net periodic pension expense | 2,142 | 874 | 377 | 232 | ||||||||||||
Emerson-sponsored defined benefit plans | 17,758 | 12,638 | 128 | 75 | ||||||||||||
Defined contribution plans | 689 | 643 | 1,446 | 1,597 | ||||||||||||
Total retirement plan expense | $ | 20,589 | $ | 14,155 | $ | 1,951 | $ | 1,904 |
U.S. Plans | Mexico Plans | |||||||
2014 | 2014 | |||||||
Projected benefit obligation, beginning | $ | 38,771 | $ | 2,862 | ||||
Service cost | 292 | 204 | ||||||
Interest cost | 1,787 | 222 | ||||||
Actuarial (gain) loss | 4,478 | (11 | ) | |||||
Benefit paid | (2,181 | ) | (106 | ) | ||||
Foreign currency translation and other | — | (80 | ) | |||||
Projected benefit obligation, ending | $ | 43,147 | $ | 3,091 | ||||
Fair value of plan assets, beginning | $ | 40,006 | $ | 2,012 | ||||
Actual return on plan assets | 4,124 | 90 | ||||||
Employer contributions | 1,830 | 264 | ||||||
Benefits paid | (2,181 | ) | (106 | ) | ||||
Foreign currency translation and other | — | (57 | ) | |||||
Fair value of plan assets, ending | $ | 43,779 | $ | 2,203 | ||||
Net amount recognized in the balance sheet | $ | 632 | $ | (888 | ) | |||
Amounts recognized in the balance sheet: | ||||||||
Noncurrent asset | $ | 832 | $ | — | ||||
Current liability | — | (65 | ) | |||||
Noncurrent liability | (200 | ) | (823 | ) | ||||
Pretax accumulated other comprehensive loss | (8,457 | ) | (582 | ) |
U.S. Plans | Mexico Plans | |||||||||||
Net pension expense: | 2013 | 2014 | 2013 | 2014 | ||||||||
Discount rate | 4.00 | % | 4.75 | % | 7.00 | % | 8.00 | % | ||||
Expected return on plan assets | 7.75 | % | 7.50 | % | 7.50 | % | 7.00 | % | ||||
Rate of compensation increase | — | % | — | % | 4.50 | % | 4.50 | % | ||||
Benefit obligations: | ||||||||||||
Discount rate | 4.75 | % | 4.25 | % | 8.00 | % | 7.35 | % | ||||
Rate of compensation increase | — | % | — | % | 4.50 | % | 4.50 | % |
U.S. Plans | Mexico Plans | |||||||||||||||
2013 | 2014 | Target | 2013 | 2014 | Target | |||||||||||
Equity securities | 65 | % | 63 | % | 60-70% | 28 | % | 28 | % | 25-30% | ||||||
Debt securities | 30 | % | 32 | % | 25-35 | 72 | % | 72 | % | 70-75 | ||||||
Other | 5 | % | 5 | % | 3-10 | — | % | — | % | — | ||||||
Total | 100.0% | 100.0% | 100.0% | 100.0% | 100.0% | 100.0% |
Level 1 | Level 2 | Level 3 | Total | % | |||||||||||||||
2014 | |||||||||||||||||||
U.S. equities | $ | 6,406 | $ | 10,783 | $ | 1,082 | $ | 18,271 | 40 | % | |||||||||
International equities | 3,462 | 4,291 | — | 7,753 | 17 | % | |||||||||||||
Emerging market equities | — | 2,194 | — | 2,194 | 5 | % | |||||||||||||
Corporate bonds | — | 4,761 | — | 4,761 | 10 | % | |||||||||||||
Government bonds | — | 8,978 | — | 8,978 | 20 | % | |||||||||||||
High yield bonds | — | 1,785 | — | 1,785 | 4 | % | |||||||||||||
Other | 1,190 | 1,015 | 35 | 2,240 | 4 | % | |||||||||||||
Total | $ | 11,058 | $ | 33,807 | $ | 1,117 | $ | 45,982 | 100 | % | |||||||||
2013 | |||||||||||||||||||
U.S. equities | $ | 6,227 | $ | 9,814 | $ | 724 | $ | 16,765 | 40 | % | |||||||||
International equities | 3,376 | 4,062 | — | 7,438 | 18 | % | |||||||||||||
Emerging market equities | — | 2,137 | — | 2,137 | 5 | % | |||||||||||||
Corporate bonds | — | 4,300 | — | 4,300 | 10 | % | |||||||||||||
Government bonds | — | 7,742 | — | 7,742 | 19 | % | |||||||||||||
High yield bonds | — | 1,567 | — | 1,567 | 4 | % | |||||||||||||
Other | 1,031 | 1,003 | 35 | 2,069 | 4 | % | |||||||||||||
Total | $ | 10,634 | $ | 30,625 | $ | 759 | $ | 42,018 | 100 | % |
2013 | 2014 | ||||||
United States | $ | 55,884 | $ | 54,882 | |||
Non-U.S. | 24,141 | 34,772 | |||||
Total pretax earnings (loss) from continuing operations | $ | 80,025 | $ | 89,654 |
2013 | 2014 | ||||||
Current: | |||||||
Federal | $ | 25,782 | $ | 19,037 | |||
State and Local | 2,477 | 2,387 | |||||
Non-U.S. | 9,536 | 11,611 | |||||
Deferred: | |||||||
Federal | (7,236 | ) | (1,020 | ) | |||
State and Local | (98 | ) | (60 | ) | |||
Non-U.S. | (2,899 | ) | (3,334 | ) | |||
$ | 27,562 | $ | 28,621 |
2013 | 2014 | ||||
Federal Rate | 35.0 | % | 35.0 | % | |
State and local taxes, net of federal tax benefit | 2.0 | % | 1.7 | % | |
Non-U.S. rate differential | (2.8 | )% | (2.9 | )% | |
Repatriation | 1.6 | % | — | % | |
Section 199 | (2.2 | )% | (1.3 | )% | |
Other | 0.8 | % | (0.6 | )% | |
Effective income tax rate | 34.4 | % | 31.9 | % |
2014 | ||||
Beginning Balance at October 1 | $ | 3,078 | ||
Additions for current year tax positions | 664 | |||
Reductions for prior year tax positions | (44 | ) | ||
Reductions for settlements with tax authorities | (171 | ) | ||
Reductions for expirations of statute of limitations | (612 | ) | ||
Ending Balance at September 30 | $ | 2,915 |
Deferred Tax Assets: | 2013 | 2014 | |||||
Accrued liabilities | $ | 4,562 | $ | 3,679 | |||
Employee compensation and benefits | 5,474 | 4,607 | |||||
Environmental liability | 7,477 | 8,633 | |||||
Net operating leases and credit carryforwards | 1,943 | 1,484 | |||||
Other | 5,456 | 6,715 | |||||
Total | $ | 24,912 | $ | 25,118 | |||
Valuation allowances | $ | (1,715 | ) | $ | (1,519 | ) | |
Deferred Tax Liabilities: | |||||||
Intangibles | $ | (13,365 | ) | (11,069 | ) | ||
Property, plant & equipment | (7,377 | ) | (6,139 | ) | |||
Other | (1,243 | ) | (2,358 | ) | |||
Total | (21,985 | ) | (19,566 | ) | |||
Net Deferred Income Tax Asset (Liability) | $ | 1,212 | $ | 4,033 |
2013 | 2014 | ||||||
Cash pool cash | $ | 82,703 | $ | 90,720 | |||
Cash pool borrowings | 21,462 | 14,378 | |||||
Related-party receivables | $ | 743 | $ | 144 | |||
Related-party payables | 926 | 1,288 | |||||
Cumulative intercompany receivable due form Emerson (included in invested equity) | $ | 200,345 | $ | 229,358 |
Location | 2013 | 2014 | |||||||
Related-party sales to Emerson affiliates | Net Sales | $ | 1,367 | $ | 1,867 | ||||
Support services | SG&A | 7,289 | 8,187 | ||||||
IT services | SG&A | 1,934 | 1,845 | ||||||
Emerson-sponsored programs | SG&A | 10,700 | 10,508 |
Sales by Destination | Property, Plant and Equipment, Net | |||||||||||
2013 | 2014 | 2014 | ||||||||||
United States and Canada | $ | 443,977 | 419,878 | 64,246 | ||||||||
Europe | 93,738 | 99,721 | 30,868 | |||||||||
Latin America | 37,764 | 40,034 | 20,274 | |||||||||
Asia | 31,626 | 39,291 | 5,282 | |||||||||
Middle East/Africa | 9,823 | 8,413 | — | |||||||||
$ | 616,928 | $ | 607,337 | $ | 120,670 |
2013 | 2014 | ||||||
Depreciation expense | $ | 20,692 | $ | 15,697 | |||
Rent expense | 6,130 | 6,893 |
2013 | 2014 | |||||||
Environmental - Non-Current | $ | 16,743 | $ | 19,647 | ||||
Environmental - Current | 6,000 | 6,000 | ||||||
Accrued Rebates | 10,231 | 9,997 | ||||||
Employee compensation liability | 13,482 | 14,119 |
Balance September 30, 2012 | $ | 864 | |
Expense | 405 | ||
Paid/Utilized | (494 | ) | |
Balance September 30, 2013 | $ | 775 | |
Expense | 1,003 | ||
Paid/Utilized | (1,058 | ) | |
Balance, September 30, 2014 | $ | 720 |
Historical Regal Beloit Corporation | Historical PTS | Pro Forma Adjustments (1) | Pro Forma Combined | |||||||||||||
Net sales | $ | 3,095.7 | $ | 616.9 | $ | — | $ | 3,712.6 | ||||||||
Cost of sales | 2,312.5 | 403.0 | 5.6 | (2) | 2,721.1 | |||||||||||
Gross Profit | 783.2 | 213.9 | (5.6 | ) | 991.5 | |||||||||||
Operating expenses | 494.2 | 137.7 | (7) | 7.4 | (3) | 639.3 | ||||||||||
Goodwill Impairment | 76.3 | — | — | 76.3 | ||||||||||||
Asset Impairments and Other, Net | 4.7 | — | — | 4.7 | ||||||||||||
Total Operating Expenses | 575.2 | 137.7 | 7.4 | 720.3 | ||||||||||||
Income from operations | 208.0 | 76.2 | (13.0 | ) | 271.2 | |||||||||||
Interest expense | 42.4 | — | 27.4 | (4) | 69.8 | |||||||||||
Interest income | 4.9 | 3.9 | (4.8 | ) | (5) | 4.0 | ||||||||||
Income before taxes | 170.5 | 80.1 | (45.2 | ) | 205.4 | |||||||||||
Provision for income taxes | 44.5 | 27.6 | (13.0 | ) | (6) | 59.1 | ||||||||||
Net income | 126.0 | 52.5 | (32.2 | ) | 146.3 | |||||||||||
Less: Net income attributable to noncontrolling interests | 6.0 | — | — | 6.0 | ||||||||||||
Net income attributable to Regal Beloit Corporation | $ | 120.0 | $ | 52.5 | $ | (32.2 | ) | $ | 140.3 | |||||||
Earnings per share of common stock: | ||||||||||||||||
Basic | $ | 2.66 | $ | 3.12 | ||||||||||||
Assuming Dilution | $ | 2.64 | $ | 3.09 | ||||||||||||
Weighted average number of shares outstanding: | ||||||||||||||||
Basic | 45.0 | 45.0 | ||||||||||||||
Assuming Dilution | 45.4 | 45.4 |
1. | Inventories have been adjusted to their estimated fair market value. As this adjustment is directly attributed to the acquisition and will not have a continuing impact, it is not reflected in the Pro Forma Statement of Income. However, this inventory adjustment will result in an expense to cost of sales in periods subsequent to the consummation of the acquisition during which the related inventories are sold. The estimated expense is approximately $20.2 million (approximately $14.2 million, net of tax). |
Adjustment to PTS’s historical depreciation expense based on the assigned fair value and estimated useful lives of Net Property, Plant and Equipment. | $ | 5.6 |
Adjustment to PTS’s historical amortization of intangible assets based on the assigned fair value and estimated useful lives of such assets | $ | 28.5 | ||
Adjustment to pension and other postretirement benefit ("OPEB") expense for changes in the benefit obligations assumed by the Company as compared to the PTS historical pension and OPEB obligations based on an actuarial study | (12.8 | ) | ||
Adjustment for costs not expected to recur for support services, IT services and other sponsored programs | (3.3 | ) | ||
Adjustment to PTS's historical environmental expense based on the indemnification terms included in the purchase agreement | (5.0 | ) | ||
$ | 7.4 |
Interest on the new term loan and revolving credit facilities of approximately 2%. A 0.125% change in the interest rate payable on the outstanding amount of the new term loan and revolving credit facilities would change annual interest expense by approximately $1.7 million before the effect of income taxes on an annual basis | $ | 23.8 | ||
Amortization of capitalized borrowing costs incurred by the Company in connection with the new term loan and revolving credit facilities | 3.6 | |||
$ | 27.4 |
Adjustments to historical interest income based on the lower amount of available funds to be invested due to the PTS acquisition. | $ | (4.8 | ) |
Pro forma income taxes have been provided for local statutory rates by jurisdiction. The pro forma combined provision for income taxes may not represent the amounts that would have resulted had the Company and PTS filed consolidated income tax returns during the period presented. | $ | (13.0 | ) |
PTS operating expenses include the reclassification of PTS's historical other deductions (income), net to conform with the Company's statement of income classification. | $ | 21.2 |
Historical Regal Beloit Corporation | Historical PTS (1), (2) | Pro Forma Adjustments | Pro Forma Combined | |||||||||||||
Net sales | $ | 2,481.4 | $ | 478.7 | $ | — | $ | 2,960.1 | ||||||||
Cost of sales | 1,872.2 | 304.1 | 4.2 | (3) | 2,180.5 | |||||||||||
Gross Profit | 609.2 | 174.6 | (4.2 | ) | 779.6 | |||||||||||
Operating expenses | 376.1 | 99.6 | (8) | 8.5 | (4) | $ | 484.2 | |||||||||
Goodwill Impairment | 1.0 | — | — | 1.0 | ||||||||||||
Total Operating Expenses | 377.1 | 99.6 | 8.5 | 485.2 | ||||||||||||
Income from operations | 232.1 | 75.0 | (12.7 | ) | 294.4 | |||||||||||
Interest expense | 30.5 | — | 20.5 | (5) | 51.0 | |||||||||||
Interest income | 5.4 | 3.1 | (3.8 | ) | (6) | 4.7 | ||||||||||
Income before taxes | 207.0 | 78.1 | (37.0 | ) | 248.1 | |||||||||||
Provision for income taxes | 55.1 | 24.6 | (10.9 | ) | (7) | 68.8 | ||||||||||
Net income | 151.9 | 53.5 | (26.1 | ) | 179.3 | |||||||||||
Less: Net income attributable to noncontrolling interests | 4.4 | — | — | 4.4 | ||||||||||||
Net income attributable to Regal Beloit Corporation | $ | 147.5 | $ | 53.5 | $ | (26.1 | ) | $ | 174.9 | |||||||
Earnings per share of common stock: | ||||||||||||||||
Basic | $ | 3.27 | $ | 3.88 | ||||||||||||
Assuming Dilution | $ | 3.25 | 3.85 | |||||||||||||
Weighted average number of shares outstanding: | ||||||||||||||||
Basic | 45.1 | 45.1 | ||||||||||||||
Assuming Dilution | 45.4 | 45.4 |
1. | The Statement of Income for Historical PTS was derived from the fiscal year ended September 30, 2014 less the fiscal quarter ended December 31, 2013 to align with the financial period presentation of Regal Beloit Corporation for the nine months ended September 27, 2014. |
2. | Inventories have been adjusted to their estimated fair market value. As this adjustment is directly attributed to the acquisition and will not have a continuing impact, it is not reflected in the Pro Forma Statement of Income. However, this inventory adjustment will result in an expense to cost of sales in periods subsequent to the consummation of the acquisition during which the related inventories are sold. The estimated expense is approximately $20.2 million (approximately $14.2 million, net of tax). |
Adjustment to PTS’s historical depreciation expense based on the assigned fair value and estimated useful lives of Net Property, Plant and Equipment. | $ | 4.2 |
Adjustment to PTS’s historical amortization of intangible assets based on the assigned fair value and estimated useful lives of such assets | $ | 21.4 | ||
Adjustment to pension and other postretirement benefit ("OPEB") expense for changes in the benefit obligations assumed by the Company as compared to the PTS historical pension and OPEB obligations based on an actuarial study | (5.2 | ) | ||
Adjustment for costs not expected to recur for support services, IT services and other sponsored programs | (3.2 | ) | ||
Adjustment to PTS's historical environmental expense based on the indemnification terms included in the purchase agreement. | (4.5 | ) | ||
$ | 8.5 |
Interest on the new $1.325 billion term loan and revolving credit facilities of approximately 2%. A 0.125% change in the interest rate payable on the outstanding amount of the new term loan and revolving credit facilities would change annual interest expense by approximately $1.7 million before the effect of income taxes on an annual basis | $ | 17.8 | ||
Amortization of capitalized borrowing costs incurred by the Company in connection with the new term loan and revolving credit facilities | 2.7 | |||
$ | 20.5 |
Adjustments to historical interest income based on the lower amount of available funds to be invested due to the PTS acquisition | $ | (3.8 | ) |
Pro forma income taxes have been provided for local statutory rates by jurisdiction. The pro forma combined provision for income taxes may not represent the amounts that would have resulted had the Company and PTS filed consolidated income tax returns during the period presented | $ | (10.9 | ) |
PTS operating expenses include the reclassification of PTS's historical other deductions (income), net to conform with the Company's statement of income classification | $ | 11.1 |
Historical Regal Beloit Corporation | Historical PTS | Pro Forma Adjustments (1), (2) | Pro Forma Combined | ||||||||||||
ASSETS | |||||||||||||||
Current Assets: | |||||||||||||||
Cash and Cash Equivalents | $ | 327.3 | $ | 100.7 | $ | (206.6 | ) | (3) | $ | 221.4 | |||||
Trade Receivables, less Allowances | 545.7 | 88.6 | (2.5 | ) | (17) | 631.8 | |||||||||
Inventories | 681.7 | 85.0 | 20.2 | (4) | 786.9 | ||||||||||
Prepaid Expenses and Other Current Assets | 116.5 | 3.4 | 3.6 | (5) | 123.5 | ||||||||||
Deferred Income Tax Benefits | 47.5 | 9.0 | (7.1 | ) | (6) | 49.4 | |||||||||
Total Current Assets | 1,718.7 | 286.7 | (192.4 | ) | 1,813.0 | ||||||||||
Net Property, Plant and Equipment | 572.0 | 120.7 | 56.3 | (4) | 749.0 | ||||||||||
Goodwill | 1,126.3 | 222.8 | 340.7 | 1,689.8 | |||||||||||
Intangible Assets, Net of Amortization | 234.9 | 35.2 | 653.8 | (4) | 923.9 | ||||||||||
Other Noncurrent Assets | 19.5 | 8.4 | 8.0 | (7) | 35.9 | ||||||||||
Total Assets | $ | 3,671.4 | $ | 673.8 | $ | 866.4 | $ | 5,211.6 | |||||||
LIABILITIES AND EQUITY | |||||||||||||||
Current Liabilities: | |||||||||||||||
Accounts Payable | $ | 347.9 | $ | 57.5 | $ | — | $ | 405.4 | |||||||
Dividends Payable | 9.8 | — | — | 9.8 | |||||||||||
Hedging Obligations | 7.8 | — | — | 7.8 | |||||||||||
Accrued Compensation and Employee Benefits | 90.6 | 14.1 | (18) | — | 104.7 | ||||||||||
Other Accrued Expenses | 128.2 | 42.3 | (15.9 | ) | (8) | 154.6 | |||||||||
Current Maturities of Long-Term Debt | 8.3 | 14.4 | (14.4 | ) | (9) | 8.3 | |||||||||
Total Current Liabilities | 592.6 | 128.3 | (30.3 | ) | 690.6 | ||||||||||
Long-Term Debt | 668.6 | — | 1,325.0 | (10) | 1,993.6 | ||||||||||
Deferred Income Taxes | 144.9 | 11.2 | 61.9 | (11) | 218.0 | ||||||||||
Hedging Obligations | 14.0 | — | — | 14.0 | |||||||||||
Pension and Other Post Retirement Benefits | 40.0 | 0.3 | (19) | 42.0 | (12) | 82.3 | |||||||||
Other Noncurrent Liabilities | 34.6 | 27.2 | (15.6 | ) | (13) | 46.2 | |||||||||
Equity: | |||||||||||||||
Regal Beloit Corporation Shareholders' Equity: | |||||||||||||||
Common Stock, $.01 par value, 100.0 million shares authorized, 44.7 million and 45.1 million shares issued and outstanding at 2014 and 2013, respectively | 0.4 | — | — | 0.4 | |||||||||||
Additional Paid-In Capital | 889.9 | (229.4 | ) | 229.4 | (14) | 889.9 | |||||||||
Retained Earnings | 1,318.1 | 742.0 | (751.8 | ) | (15) | 1,308.3 | |||||||||
Accumulated Other Comprehensive Loss | (77.3 | ) | (5.8 | ) | 5.8 | (16) | (77.3 | ) | |||||||
Total Regal Beloit Corporation Shareholders' Equity | 2,131.1 | 506.8 | (516.6 | ) | 2,121.3 | ||||||||||
Noncontrolling Interests | 45.6 | — | — | 45.6 | |||||||||||
Total Equity | 2,176.7 | 506.8 | (516.6 | ) | 2,166.9 | ||||||||||
Total Liabilities and Equity | $ | 3,671.4 | $ | 673.8 | $ | 866.4 | $ | 5,211.6 |
1. | A summary of sources and uses of proceeds for the Acquisition is as follows (in millions): |
Sources of Funds: | ||||
Proceeds from new 2015 term loan facility | $ | 1,250.0 | ||
Proceeds from revolving credit facility | 75.0 | |||
Cash and cash equivalents | 113.4 | |||
Total sources of funds | $ | 1,438.4 |
Uses of Funds: | ||||
Acquisition of PTS including cash acquired | $ | 1,408.0 | ||
Debt issuance costs | 17.8 | |||
Transaction costs | 12.6 | |||
Total uses of funds | $ | 1,438.4 |
2. | The allocation of the consideration transferred to acquire PTS is preliminary. The Company is in the process of evaluating the net asset value (as defined in the asset and share purchase agreement) of PTS as of the closing date of the Acquisition in connection with a potential adjustment to the purchase price. The Company is also in the process of reviewing PTS's financial statement classifications for conformity with the Company's classifications. As a result of this review, it may be necessary to make additional reclassifications to the consolidated information of PTS on a prospective basis. |
Cash and cash equivalents | $ | 7.5 | ||
Receivables | 86.1 | |||
Inventory | 105.2 | |||
Other current assets | 3.4 | |||
Goodwill | 563.5 | |||
Intangible assets | 689.0 | |||
Property, plant and equipment | 177.0 | |||
Other noncurrent assets | 2.2 | |||
Liabilities assumed | (151.9 | ) | ||
Deferred tax liability associated with purchase accounting adjustments | (74.0 | ) | ||
$ | 1,408.0 |
Cash and cash equivalents for acquisition | $ | 83.0 | ||
Cash at September 27, 2014, net of cash acquired | 93.2 | |||
Adjustment for cash payment of non-recurring, direct, incremental transaction costs subsequent to September 27, 2014 | 12.6 | |||
Adjustment for cash payment of debt issuance cots subsequent to September 27, 2014 | 17.8 | |||
$ | 206.6 |
Borrowing costs incurred by the Company in connection with the new $1.325 billion term loan facility (current portion) | $ | 3.6 |
Income tax effect on payment of acquisition costs directly related to the acquisition | $ | 2.8 | ||
Elimination of PTS's historical deferred income taxes | (8.4 | ) | ||
Deferred tax liability on inventory step-up adjustment | (1.5 | ) | ||
$ | (7.1 | ) |
Borrowing costs incurred by the Company in connection with the new $1.325 billion term loan facility (non-current portion) | $ | 14.2 | ||
Elimination of deferred tax asset related to an environmental liability based on indemnification terms of the Purchase Agreement | (6.2 | ) | ||
$ | 8.0 |
Elimination of PTS's historical income taxes | $ | (9.9 | ) | |
Elimination of PTS's historical environmental liability (current portion) based on indemnification terms of the Purchase Agreement | (6.0 | ) | ||
$ | (15.9 | ) |
Elimination of cash pool borrowings represented as current maturities of long-term debt | $ | (14.4 | ) |
Proceeds from the new Term Loan and Revolving Credit Facility | $ | 1,325.0 |
Deferred tax liability associated with purchase accounting adjustments using local statutory rates by tax jurisdiction | $ | 86.0 | ||
Elimination of PTS's historical deferred income taxes | (8.5 | ) | ||
Deferred tax asset associated with a purchase accounting adjustment for a U.S. pension liability | (15.6 | ) | ||
$ | 61.9 |
This adjustment was included historically as an obligation of the parent company of PTS and assumed by the Company. The value for the pension obligations and retiree health care obligations was based on an actuarial study | $ | 42.0 |
Elimination of PTS's historical environmental liability (long-term portion) based on indemnification terms of the Purchase Agreement | $ | (15.6 | ) |
Elimination of PTS's historical Additional Paid in Capital | $ | 229.4 |
Costs directly related to the acquisition, net of tax, which will be expensed as incurred and are assumed to be incurred on the date of the acquisition | $ | (9.8 | ) | |
Elimination of PTS's historical retained earnings | (742.0 | ) | ||
$ | (751.8 | ) |
Elimination of PTS's historical accumulated other comprehensive loss | $ | 5.8 |
Elimination of a receivable related to an environmental indemnification agreement between Emerson Electric Co. and another responsible party | $ | (2.5 | ) |
PTS's accrued expenses have been adjusted to reflect the reclassification of PTS's accrued compensation and employee benefits to conform with the Company's Balance Sheet classification | $ | 14.1 |
PTS's other noncurrent liabilities have been adjusted to reflect the reclassification of PTS's pension and other post retirement benefits to conform to the Company's Balance Sheet classification | $ | 0.3 |